Strategy and Planning
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What is the best trading strategy?
All trading strategies can perform well under specific market conditions. So, there is no best trading strategy. That makes the choosing process hard. We advise you to get to know yourself pretty well before choosing. It may seem like this isn't related to trading, but it really is. Your personality, discipline, risk tolerance, and the way you make decisions are all important.
Choosing a trading strategy doesn't have to be complicated, and you don't have to always stick with one. A key aspect to remember is that the best traders are adaptable and can change their trading strategies based on new opportunities. Hence, it's a good idea to learn about each trading strategy, and by combining different methods to trading, you will become adaptive to every possible situation. But remember not to become disheartened if you encounter initial losses on your capital. Patience is vital when becoming a successful trader, and mistakes and missteps are inevitable to develop your trading skills.
End-of-day trading strategy
The end-of-day trading strategy is the act of trading near the close of markets. End-of-day dealers become active when it becomes clear that the price will 'settle' or close.
This strategy demands from you to study price action compared to the previous day's price movements. Then, you can speculate how the price could move based on the price action and decide on any indicators you will use in your system. You should create a set of risk management orders, including a stop-loss order, a limit order, and a take-profit order to mitigate any overnight risk. All of these risk management orders are available for free in the State Webtrader platform.
This trading strategy requires less time commitment than other trading strategies. That's because you only need to study charts at their opening and closing times.
Benefits of end-of-day trading
It's suitable for most traders. End-of-day trading can be an excellent way to start trading, as there is no need to enter multiple positions.
Less time commitment. Traders can analyze charts and place market orders either in the morning or at night. And that is significantly less time-consuming than other strategies.
Drawbacks of end-of-day trading
Overnight risk. Overnight positions can incur more risks, but these risks can be mitigated if you place a stop-loss order. Guaranteed stop-losses are even more helpful to reduce risks.
Swing trading strategy
The term 'swing trading' refers to trading on both sides of any financial market movement. Swing traders buy a security when they suspect that the price will rise. On the other hand, they can sell an asset when they suspect that the price will fall.
Using this strategy, you can take advantage of the market's swayings while the price swings from an overbought to an oversold state, back and forth. Swing trading is just a technical approach to analyzing markets, achieved through studying charts and analyzing the movements that cause a bigger picture trend.
Successful swing trading depends on interpreting the length and duration of each swing, as these determine essential support and resistance levels. Additionally, you will need to identify the trends markets encounter that increase supply or demand levels. You can also consider if momentum is increasing or decreasing within each swing while monitoring trades.
During strong trends, you can use retracement swings to enter the trend direction. These points are referred to as pullbacks or dips in an existing trend. You can also look to the highest probability trade when a new momentum high is made, usually buying the first pullback. But when a new momentum low is completed, you can sell the first rally. To do all that, you can use our tools to identify trend patterns as part of your technical analysis.
Benefits of swing trading
It's viable as a hobby. Swing trading can be more suitable for you if you have limited time. Nevertheless, it does need some research to understand how swaying patterns work.
Many trade opportunities. Swing trading includes trading 'both sides of the market. So you can go long and short across many securities.
Drawbacks of swing trading
Overnight risk. Some trades will be held overnight, causing additional risks, but this can be mitigated by placing a stop-loss order on your positions.
It requires extensive research. Much research is necessary to learn how to analyze markets, as technical analysis comprises various technical indicators and patterns.
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Day trading strategy
Day trading or intraday trading is fit for traders that want to actively trade in the daytime, usually as a full-time profession. Day traders benefit from price fluctuations in-between the market open and close hours.
Day traders typically hold multiple positions open in a day but do not leave open positions overnight to minimize the risk of overnight market changes.
If you choose the day trading strategy, it's best to follow an organized trading plan that immediately adapts to fast market changes.
Benefits of day trading
No overnight risk. By definition, day trading means no trade is left open overnight, so there is no overnight risk.
Limited intra-day risk. Day trading means you will only open short-term trades that usually last around 1 to 4 hours, minimizing the likelihood of risks in longer-term trades.
Time flexible trading. Day trading might fit those who desire flexibility with their trading. As a day trader, you may enter 1 to 5 positions during the day and close all of them when you achieve your objectives.
Multiple trade opportunities. As a day trader, you can use local and international markets and open and close many positions within the day, including the benefit from 24/5 forex market hours.
Drawbacks of day trading
It requires discipline. Similar to other short-term styles, day trading needs discipline. You should utilize a predetermined strategy, complete with entry and exit levels, to manage your risk.
Flat trades. Flat trade happens when some positions do not move within the day, which is to be expected.
Scalping trading strategy
Traders who use a scalping strategy enter very short-term trades with small price movements. Scalpers want to scalp a small profit from each trade, hoping that the small profits will accumulate. A scalper would run away from the common phrase ""let your profits run,"" as they tend to take their profits before the market starts moving.
Scalpers usually function on a risk/reward ratio of around 1/1. That's why it is common for scalpers not to make a significant profit per trade. They instead focus on increasing their total number of smaller winning trades.
You need to have a disciplined exit strategy as a scalper because a significant loss can kill many other profits earned slowly and steadily.
Benefits of scalping
No overnight risk. By following the scalping trading, you will not hold overnight positions, and most trades only last for a few minutes at maximum.
It's suitable as a hobby. Scalping is ideal for those who want to trade occasionally.
Many trading opportunities. You can open many short positions with a less defined criterion than other strategies; hence, there are many opportunities to trade.
Drawbacks of scalping
Limited market applicability. Scalping only works in specific markets such as indices, bonds, and some US equities. Scalping needs very high volatility and trading volumes to be worthwhile.
Requires discipline. Scalping demands larger position sizes than other trading strategies, so you need to be highly disciplined.
It's an agitated environment. Observing the minor price movements in search of profits can be a remarkably intense activity. It's therefore not recommended for beginner traders.
Position trading strategy
Position trading is the act where a trader holds a position for a long time, usually months or years, overlooking minor price changes favoring profiting from long-term trends.
You need to use fundamental analysis to evaluate potential market price trends and consider other factors such as market trends and historical patterns.
Benefits of position trading
High profits. Position trading enables you to use high leverage because the possibility of a mistake is slighter than in conventional trading.
Less stress. One of the most significant advantages of position trading is that positions don't have to be checked daily. Hence, less stress.
Drawbacks of position trading
Significant loss. Position traders tend to overlook minor fluctuations that can significantly impact a trend and result in substantial losses.
Swap. The swap is a commission you pay to the broker. When the position is open for a long time, the swaps can accumulate a large amount.
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